TOGY talks to
Petrochemicals potentialMay 29, 2017
Stefan Lepecki, general director and CEO of Braskem Idesa, talks to TOGY about the company’s goals and the opportunities that Mexico has in the petrochemicals arena. Established in 2010 as a joint venture between Brazil's Braskem and Mexico’s Grupo Idesa, the company operates the USD 5.2-billion Braskem Idesa Petrochemical Complex (BIPC).
Formerly known as Ethylene XXI, the BIPC is the largest private greenfield petrochemicals complex in the Americas. The facility receives ethane from Pemex under a 20-year contract and is designed to produce 1.05 million tpy of high- and low-density polyethylene. As of November 2016, the BIPC is producing at 95% of its capacity. Output from the complex is expected to meet 65-70% of domestic polyethylene demand in 2018.
• On realising domestic potential: “The petrochemicals potential in Mexico is tremendous. We have the gas and we have infrastructure. Unfortunately, the market has lacked investments in the last couple of years, but we strongly believe that collaboration between private and public companies will bring about the real potential of Mexico.”
• On Braskem Idesa’s goals: “Together with Pemex and the government, we want to fight for efficient solutions for feedstock, not only to guarantee our operations, but also to improve Mexico’s general capacity to process ethane. We will continue to help fulfil the country’s potential in petrochemicals, alongside the government and Pemex.”
Lepecki also discussed Braskem Idesa’s petrochemicals production milestones, capitalising on the regional increase in plastics consumption and balancing local and international distribution. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Stefan Lepecki below.
What have been Braskem Idesa’s operational highlights over the past 12 months?
Braskem Idesa’s main focus for the past 12 months has been the startup and stabilisation of the plants within the BIPC, which is a huge development for the petrochemicals sector.
Inside we have four process plants, one of which is an ethane cracker that converts ethane into ethylene. There are also three polyethylene plants where the final products are made. The project also includes all the utilities plants necessary to run such a complex, such as waste treatment; steam and electricity generation; air, gas and water systems; besides a very modern logistics platform for the final products.
Because of the integration required, it has been a challenge to put these plants into operation. When there is a problem with the cracker, for instance, it directly affects the polyethylene plants and vice versa. Thus, we’ve been focusing our efforts on plant adjustments to improve performance.
In addition, we’ve been addressing our team’s learning curve. This has also been a challenge, considering that we stress hiring locally – 95% of our employees are Mexican – and the people available in this industry have not worked in similar plants. In fact, the only ethylene and polyethylene producer in Mexico is Pemex, so we had to hire people from the market and from universities and engage them in extensive training programmes to accelerate the learning curve. These programmes usually took place at similar plants in our complexes in Brazil.
What have been the company’s key targets?
Stabilisation of the complex has been the main driver. As of November 2016, we have achieved operational capacity of 95%, and since then, we’ve operated above that mark. The goal for 2017 is to maintain this performance.
Our second target involves sales. We conducted pre-marketing for three years to understand the clients, channels and logistical issues. Based on what we learned, and with the startup, we started selling our own products in mid-2016. The process of certification of our polyethylenes with customers, and developing relationships with our clients and their clients, is very important in building logistics and service solutions.
Our target is to achieve a balanced proportion of sales in Mexico and export markets in the first three years. There would be another type of stabilisation, to stabilise our logistics and services, as well as production.
How are you distributing your products?
We’re currently fine-tuning our strategy for distribution within Mexico and for exports. We’ve exported to more than 40 countries on five continents since operations began, and we’ve already delivered more than 500,000 tonnes of product to our domestic and international clients in these first 12 months.
The logistics involved in moving these products has taken a lot of our attention during the past 12 months. In fact, it quickly proved to be a challenge. The advantage of being part of Braskem Group granted us access to many international channels of commercialisation in Africa, Asia, Turkey, the Middle East, Europe and elsewhere.
We plan to gradually grow our position within the Mexican market. In 2016, 60% of our efforts were put into producing for exports. In 2017, it should be the opposite: 60% of our production should go into the local market, rising to 65-70% in 2018.
Our main objective is to serve the local and regional markets, though this obviously can’t happen overnight.
How have private companies and associations supported Pemex in the development of the petrochemicals sector?
The energy reform is a very important initiative for the country, for many reasons. If a NOC can work harmoniously with private companies, it will have a significant impact in developing the Mexican industry.
This is a crucial movement and we’re keen to participate. Pemex is focusing on upstream initiatives right now. However, in a few years, the results of this energy reform will show up and there will be opportunities for new investment in increasing petrochemicals assets and supplies, for instance.
Joint efforts and business development between private players and the NOC are extremely beneficial for the industry’s growth. For example, in the southeast of the country, there is pre-existing pipeline infrastructure and there are gas separation plants owned by Pemex.
Because of the reform, there will be great opportunities to use these assets efficiently. In addition to producing oil and gas, Pemex could offer gas separation services next to its plants, as well as transportation to and from pipelines, to the future players. New players will certainly develop interesting synergies that involve Pemex’s existing infrastructure. There will be additional raw material available that petrochemicals companies such as ours would like to use in the near future.
The petrochemicals potential in Mexico is tremendous. We have the gas and we have infrastructure. Unfortunately, the market has lacked investments in the last couple of years, but we strongly believe that collaboration between private and public companies will bring about the real potential of Mexico.
How will the local downstream sector evolve over the next three years?
The market is becoming increasingly sophisticated, and requirements and regulations are becoming stricter. Consequently, competitiveness is increasing.
We need to have the capacity to work very closely with clients, to understand their needs and help develop the industry. Our ability and capacity to work with the entire value chain will be significant, because requirements are bound to become more stringent. Thus, we will need to provide more sophisticated solutions and services.
What are the competitive advantages of Mexico’s downstream sector compared to Brazil’s?
One important aspect is logistics, and Mexico is in better shape. Brazil never had the same level of trade with the USA, and in Mexico, we’re very well-placed geographically, with access to the Pacific and Atlantic oceans. In terms of infrastructure, there are also more railroads in Mexico than in Brazil.
That said, we also have our challenges. We export through the harbour in Veracruz, and use the Atlantic pass through the Panama Canal to deliver to China. In this respect, there are plenty of opportunities to improve.
There are certainly more strategic advantages in the Mexican market than in the Brazilian market at the moment. However, Mexico and Brazil are very similar in terms of market potential, or per capita consumption. Both countries have many opportunities to increase this, along with the country’s social development.
In Mexico, we see many opportunities arising with the government, Pemex, our Plastics Association and other industries.
What opportunities have been created by the increase in consumption throughout Latin America?
Plastics are more and more widely used and polyethylenes are the most used plastics. We’re working on opportunities in a lot of segments. Consumption is rising and there is a tremendous increase in opportunities in underdeveloped countries.
The phenomenon of shale gas, especially in the US, has brought a series of new investments and the region’s production capacity will be larger than anticipated. However, consumption continues to increase and there is a lot of room to grow in this direction.
In Mexico and countries with similar per capita income, the annual consumption rate of plastics is 15-18 kilos per capita. More developed countries are consuming closer to 50-70 kilos yearly per capita. The increase in the use of plastic has to do with the increasing development of society.
One example is that rather than going to an open-air market and putting produce in a basket, people are going to a supermarket and buying packages. Polyethylene, our main product, is strongly linked to packaging. More specifically, it is linked to packaging used for food and transportation.
There is a long way to go in terms of market growth, because we are selling in developing regions.
What are Braskem Idesa’s key objectives for the next three to five years?
Our main goal at this point is to develop our internal markets. We want to increase our participation, be closer to our clients and support the development of the petrochemicals industry in Mexico. We aim to replace some of our exports and produce primarily to attend the country’s demand.
Together with Pemex and the government, we want to fight for efficient solutions for feedstock, not only to guarantee our operations, but also to improve Mexico’s general capacity to process ethane. We will continue to help fulfil the country’s potential in petrochemicals, alongside the government and Pemex.
For more information on Braskem Idesa in Mexico, including the company’s 1.05-million-tpy polyethylene production capacity, see our business intelligence platform, TOGYiN.
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